Q4 2022 HCA Healthcare Inc Earnings Call
These factors helped produce solid earnings in the fourth quarter that were consistent with our guidance. We are encouraged by this outcome and believe this operational momentum should position us well for 2023.
2022 was a tale of two halves with the first happening more about winding down from the previous two years of intense COVID-19 activity and responding to the resulting challenges.
The second half was more about normalization, which included strong demand and an improving labor market.
Once again I believe our people have demonstrated an impressive capability in the face of these dynamic forces and delivered for a patient the communities, we serve and other stakeholders.
Health care people in general are unique, but I believe HCA healthcare people are even more special.
Often refer to them as can do people and again this past year I think they proved it.
I want to thank them for their hard work and everything they do each and every day for our company.
Same facility volumes across the company were strong in the fourth quarter admissions grew 3% year over year.
Non COVID-19 admissions increased in excess of 5%.
Equivalent admissions were up five 4% with impressive growth of 11% in the emergency room.
Most of our other volume category had solid growth metrics in the quarter also.
The payer mix and acuity levels in the quarter remained at favorable levels. These factors produced revenue growth against a difficult comparison of 3% in the quarter.
With respect to our people agenda, we were pleased with the improvements we saw in key metrics.
Turnover numbers for registered nurses were down 26% in the fourth quarter as compared to the previous four quarters average.
Our turnover rate is still higher than we want but we believe it is better than the industry average.
Employee engagement scores recovered to around pre pandemic levels again, our engagement is above the industry average a.
Our recruiting teams continue to generate results for the company.
<unk> increased 6% year over year in 2022.
And lastly, we opened our seventh Galen College of Nursing school this year.
With respect to labor cost during the quarter, we experienced stable labor cost per hour with utilization of contract labor declining.
As we have detailed in the past we have implemented a robust human resources plan, we executed well on it and expect to make further progress as we move into 2023 it.
It remains a top organizational priority.
Even with the progress we continue this this quarter to experienced capacity constraints, creating situations, where we were unable to deliver services in certain situations.
Also in the quarter, we saw value from our portfolio optimization plan and closed two joint ventures with strategic partners. One was with our Sarah Cannon Research Institute.
We combined with Mckesson's cancer research entity, we believe the combination of these two entities will produce better cancer research and more clinical trials across the country, providing even more community based resources for physicians and patients to fight this disease.
The second co venture is with our core trust purchasing organization, we closed on a new partnership with Blackstone. We believe this new relationship can expand our ability to offer commercial purchasing and servicing solution.
To a broad variety of customers.
We believe both of these deals achieved our strategic objectives and connected us with a better platform for success in the future.
We are excited to partner with both entities.
We also implemented our capital plan for the year as expected, including redeploying the proceeds from these two new joint ventures Bill.
Bill will provide more details in his comments.
And finally, we announced in the last quarter, a significant leadership transition that we believe will position the organization better with responding timelier to market dynamics, while also strengthening the alignment of corporate functions to our strategy.
The executives who are part of this transition are all proven HCA executives, they understand and appreciate our culture and they know how to execute.
As we push ahead into 2023 and beyond we believe the strong demand for healthcare services presents opportunity for HCA healthcare.
In an otherwise challenging macro environment, we believe the company is well positioned culturally competitively and financially to capitalize.
Our agenda next year will be focused on the following three areas.
Overcoming labor and capacity challenges.
Again, we believe we have the appropriate initiatives in place to respond to these second counter inflationary pressures.
Again, we have numerous efforts in place to contend with these forces while ensuring we continue to deliver high quality outcomes to our patients.
And third accelerating growth with our winning plays this agenda agenda continues to leverage capital investments in outpatient facilities clinical equipment for our physicians and service line expansion.
On top of our 2023 agenda. We are also making investments in our long term plan, which includes four primary elements. The first one is advancing our clinical systems and digital capabilities.
Second is transforming care models with innovative solutions.
Third is expanding our workforce development programs and fourth is investing capital in our networks to expand their offerings.
These efforts are pressuring our results some in the current year.
But we believe they are necessary in creating a platform for ultimately optimizing our networks. So they can deliver even better patient care in the future.
Let me close with this.
The last three years have been an extraordinary experience for everyone at HCA healthcare.
There has been no rest.
Nor retreat for our people and it was truly a challenge like no other <unk>.
I strongly believe however that our board our management teams and our caregivers have shine through at all.
We went into the pandemic with two priorities to protect our people and to protect the organization. So we could continue providing high quality health care to the communities. We serve I believe strongly that we showed up we delivered on these priorities and we did it the right way.
I am proud of HCA healthcare.
And I'm, even more proud of our people the future for our company is even brighter because of the past three years and what we learn.
Now we will move into 2023 in the years ahead with greater purpose with a renewed agenda to drive growth and with more confidence in our abilities to deliver value for all of our stakeholders with that I will turn the call to bill and he will discuss the quarter's results in more detail in our 2023 guidance.
Okay. Thank you Sam and good morning, everyone.
I will provide some additional comments on our performance for the quarter and the year, then discuss our 'twenty three guidance.
We finished the year with good volume metrics are fourth quarter same facility admissions increased two 9% over the prior year for.
For the full year, our same facility admissions were up 5%.
Excluding COVID-19 admissions our same facility admissions grew five 4% in the quarter and were up three 4% for the year.
For the full year Covid admissions accounted for five 2% of our emissions versus seven 8% in the prior year.
Same facility emergency room visits increased 11, 4% in the quarter as compared to the prior year and were up seven 6% for the full year.
Our same facility outpatient surgeries were up slightly in the quarter from the prior year, but increased five 6% sequentially compared to the third quarter.
Same facility inpatient surgeries were basically flat as compared to the prior year, both were impacted by one less business day in the quarter.
Our same facility revenue per equivalent admission was down two 6% in the quarter from the prior year. As this was influenced by the drop in Covid activity sequentially, our non COVID-19 revenue per equivalent admission increased approximately three 7% as compare.
Or into the third quarter.
Our case mix increased just under 2% sequentially from the third quarter and our payer mix remained stable as well.
We remain pleased with our team's management of operating costs, even with the backdrop of higher inflation rates. Our consolidated adjusted EBITDA margins were 25% in the quarter and right at 20% for the full year.
We continue to focus on our labor plans and supporting our teams while appropriately managing contract labor and premium pay programs. Our total labor cost as a percentage of revenue improved both sequentially and when compared to the prior year.
In addition, our supply cost trends have remained very consistent during the year and we are pleased with these results.
Other operating expenses have been subject to some inflationary cost pressures when compared to the prior year, but theres run fairly consistent as a percent of revenue throughout 2022.
Our cash flow and capital allocation are a key part of our long term growth and value creation strategies, our cash flow from operations was $8 5 billion in 2022 or.
Our capital spending was just under $4 4 billion for the year, which was slightly higher than our initial expectations due to some year end real estate and information technology purchases.
We paid dividends of about $650 million, and we repurchased $7 billion of our outstanding stock during the year.
Our debt to adjusted EBITDA leverage ratio was near the low end of our stated leverage range of three to four times.
For full year 2022, we realized approximately $1 2 billion in proceeds from sales of facilities and health care entities.
So let me speak to our 2023 guidance for a moment as noted in our release. This morning, we are providing full year 'twenty three guidance as follows we expect.
Revenues to range between $61 5 billion and $63 5 billion.
We expect net income attributable to HCA healthcare to range between $4 525 billion and $4 895 billion.
We expect full year adjusted EBITDA to range between 11, 8 billion and $12 4 billion.
We expect full year diluted earnings per share to range between $16 40, and $17 60.
And we expect capital spending to approximate $4 3 billion during the year.
So let me provide some additional commentary on our guidance. Our 2023 adjusted EBITDA guidance is impacted by several governmental and policy changes in 2022, we recognized approximately $280 million and Covid support mainly from DRG add ons.
<unk> of sequestration cuts and her some reimbursement for uninsured COVID-19 patients, we expect very little revenue from these programs in 2023.
Also as discussed in our first quarter release, we recognized $244 million of revenues and $90 million of expenses related to the Texas directed payment program that was for the last four months of 2021.
This program that started on September one of 'twenty, one was not approved until the first quarter of 2022.
In addition, we estimate the impact of the $3 40, b related payment reductions to be between $50 million and $100 million.
Adjusted for these items the midpoint of our 2023 adjusted EBITDA guidance would be in the middle of our historical 4% to 6% growth expectations that we have had over time.
Within our guidance, we expect our same facility equivalent admissions to grow approximately 2% to 3% and our revenue per equivalent admission to grow approximately 2%.
Depreciation is estimated to be about $3 1 billion and interest expense is projected to be around 1.9 dollars 75 billion.
Interest expense will be impacted by both higher rates and anticipated draws under our revolving credit facilities.
Finally, our fully diluted shares are expected to be about $278 million for the full year in cash flow from operations is estimated to range between $8 5 billion and $9 billion.
Also noted in our release this morning, our board of Directors has authorized a new $3 billion share repurchase program.
This will be an addition to the approximate $1 5 billion remaining authorization, we had under the previous program at the end of the year.
In addition, our board has declared an increase in our quarterly dividend from <unk> 56 to <unk> 60 per share.
With that I'll turn the call over to Frank and we will open it up for Q&A.
Thank you Bill as a reminder, please limit yourself to one question. So that we make as many as possible an opportunity to ask a question.
You may now give instructions to those who would like to ask a question.
At this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad.
Our first question comes from Justin Lake with Wolfe Research.
Thanks, Good morning.
Just a couple of numbers questions here I appreciate all the detail you've given so far.
First oil.
Thinking about 2023 can you talk a little bit about what you're expecting for labor expense.
And maybe delineate.
The costs are permanent labor versus hopefully.
Downward trend, maybe give us 22 versus <unk> 43 on labor.
A couple of thing exchanges and Redetermination right experience growth, but big Redetermination could be a tailwind at least according to our estimates.
What do you assume there on payer mix and kind of impact from that on 2023 guide as well.
Yes, Justin this is bill let me start so.
As it relates to labor cost I think as a percentage of revenue will keep it on an as reported basis flat with where we ran for the full year of this year. We continue to expect improvement in the utilization and cost of contract labor as we go through the balance of the year.
And so I think thats a good output for us.
Relative to the payer mix, we think payer mix for now will mostly remained stable. We are encouraged with what we're seeing with the enrollment and the health insurance exchanges and we believe the enrollment in our states are probably a little bit higher than what we see as a nation.
So we think we've contemplated that within the context of our overall range, but we are encouraged with some of the payer mix streams.
Okay.
Our next question comes from a J rice with credit Suisse.
Hi, everybody.
Thanks for the outlook commentary and so forth, maybe because you've got about a $600 million.
Range on the EBITDA.
The range, we're looking at.
Can you maybe talk a little bit about what are some of the swing factors do you see those mainly as topline swing factors that would get you to the higher low end or is there.
Expense management open questions in your mind.
Typically on the labor.
You've got quite a bit of a decline in the contract labor from what you spent in 'twenty two versus presumably the run rate for 'twenty three how much of that are you baking into the guidance versus how much are you, saying you've got to redeploy to support permanent labor.
A J. This is Sam I think on the guidance I mean, we've got two 5% I believe on either side of the midpoint.
The top side of that range I think is achievable if our volume.
And labor agenda.
Happens, maybe a little bit better than.
While we anticipate the low side of that range would be greater inflationary pressures and maybe some more challenges at a tenuous labor market.
Those are sort of the big variables. If you will in the equation, it's a fairly big number to begin with.
And again, the two 5% range on either side of the midpoint. We think is not unreasonable so to consider it to be.
It's very wide <unk>.
Maybe Doug.
Not fully appreciate some of the variables inside of it with respect to labor, Yes, we have made significant investments in our people. We did that throughout last year, mainly in the late summer early fall, where we adjusted our wages to deal with the movement in the market <unk>.
<unk> from some visibility that we had with.
Our overall competitive positioning.
Some of the contract labor reductions that we.
Expect and have already made even.
We'll be.
We absorbed a little bit in those decisions, but we think the net of it is what bill just alluded to and that is that we can maintain our our labor cost as a percent of revenue roughly around what we finished 2022 at so that's how we're thinking about it.
And again, we're seeing positive metrics across the key dimensions of our labor agenda that is encouraging to us.
We believe we have more room to gain with our agenda and we are hopeful that.
That will continue throughout 2023.
Okay. Thanks.
Our next question comes from Gary Taylor with Cowen.
Hi, good morning.
Two quick ones for me Bill I know you said contract labor came down again, but I didn't catch if you disclose the <unk> number.
And then my other one was just also on your comment about the other opex.
Line.
I mean, thats still a line that on a per adjusted patient day basis is up in the.
Double digits. So any help you can give us some thinking about modeling that for 'twenty three.
Yes, Gary.
On contract labor for the quarter, we were down.
About 16%, where we ran in fourth quarter of last year. So continued good improvement in that area. It represented roughly seven 8% of our total salary wages and benefits talks about given that number before so so again solid trends in the fourth quarter of this year compared to.
Where we ran last year, and especially where we ran in the first half of the year. Our other operating expenses, you're right are subject to some of the general inflationary increases that we're seeing.
Across the economy, when we think about utilities and insurance and in addition, our professional fees areas were seeing some higher single digit cost growth in other operating expenses. Fortunately if you look across the quarters for 2022 as a percentage of revenue you'll see our other operating expense expenses as a percent of revenue.
Staying relatively flat and pretty consistent throughout the year as we look forward to 2023, we do believe that's an area that can continue to see some higher single digit inflationary pressures and we factored that in to our guidance going forward again, we think labor supplies will keep in la.
Line, and hopefully below where our revenue growth is but the other operating cost areas around utilities insurance pro fees are going to continue to see some pressures and we factored that into our guidance.
Our next question comes from Ben Hendrix, with RBC capital markets.
Hey, good morning, Thank you with regard to capacity constraints.
<unk> last quarter missing out on 1% to one 5% of total admissions.
<unk> can you give us an update on where that stands now and then maybe some more commentary on progress taking your HR and case management initiatives and then the degree to which you expect those to help ease constraints and support the guidance. This year. Thank you.
This is Sam thank you for that.
We did as I mentioned in my prepared comments.
Have some moments in the quarter, where we were unable to receive transfers in or it takes certain patients into our facilities.
And that was actually a little bit elevated over the third quarter, we had roughly using this as the proxy.
Approximately 2% of our total admissions we were unable to take through our transfer centers and ahead to find those patients alternative solutions, where we could.
We were busier in the fourth quarter than we were in the third quarter. So that was part of it.
But nonetheless, we still are seeing opportunities for us to improve the throughput through our case management initiatives as we spoke to continue to increase the head count in our facilities in order to take care of these patients.
And we're hopeful that those numbers will start to come down a little bit as we push into 2023.
Yeah.
Our next question comes from Whit Mayo with VB Securities.
Hey, Thanks, Good morning, Sam I wanted to go back to <unk>.
The long term plan that you mentioned.
So talked about advancing the transformation of care delivery models can you maybe elaborate more on that sort of how that may be playing at the physician strategy, maybe a different view and working with them any plans or anything that would be helpful. Thanks.
Well, let me give you a little bit of a backdrop on our long term thinking with and.
And I think this can help you understand why we are investing in these categories first and foremost we think we have just an incredible portfolio of communities that we serve they are growing ended of themselves. So we have opportunities to invest in that growth. We think demand is going to grow.
At our markets aging baby boomers population growth.
Chronic conditions all of those things Unfortunately produce.
Demand in some respect and we think our portfolio portfolio is a little better than the national averages on that front. So we've got that as a backdrop, so theres opportunities I'll call. It outside the walls of HCA to invest in that natural growth in demand. The second piece that we believe exist as opportunities.
Inside of HCA.
We have what we call an economy of opportunities that exist across our 180 hospitals in 2400 outpatient facilities.
That we have and that opportunity is to use big data use better clinical system capability and better analytics to support.
Better care and so our technology agenda, coupled with our care transformation agenda is really about tapping into the economy of opportunity that exist inside our organization. So we think we have two sets of opportunities outside to continue to grow market share and benefit from.
The growth in our markets and then continued improvement in care delivery for better patient outcomes more efficiency better operational management in our hospitals by infusing machine learning.
Advanced analytics with our care transformation agenda. So our care transformation team is led by a physician in the clinical team with with with.
Industrial engineers at other type of people, who are big data data analysts who are supporting.
Evaluating great performance that we have inside our company and really studying the processes around those or looking outside the company for better processes, better technologies, and again weaving that into our overall agenda for our long run and we're encouraged by that we have a major initiative that we're rolling out this year in our <unk>.
<unk> unit and we're excited about the possibilities around that.
On our clinical systems were actually in our Alpha pilot on our clinical system upgrade will have a beta pilot later this year.
This is a system that we will be able to push more information standardized information into the cloud and start to turn that into actionable insights that we believe can help our patient outcomes. So we're really excited about our long run agenda and again, it's geared toward better patient care, but capitalize.
On the opportunities inside the walls of HCA.
Our next question comes from Quito, Chickering with Deutsche Bank.
Yes. Good morning, guys. Thanks for taking my questions focusing on the fourth quarter, you talked about 2% lower emissions via the transfers were those all surgeries I'm trying to understand why inpatient surgeries are so weak on easy comps and why you didn't see a bigger increase the outpatient surgeries. We've seen just some major companies report very strong U S surgical growth such tonnage.
And that Delta and also what are you seeing you grow inpatient surgeries now business surgeries in 2023, thanks, so much.
So Peter this is bill I think our surgical volume the most <unk>, we had one less business day, one less surgical day, and so that could account for a point and a half or two of that trend and I don't think theres any other trends that we observed in our outpatient or inpatient surgery or call out other than just one less operate.
<unk> de.
Going forward I would say that we would anticipate our surgical volume to reflect our longer term trends, which has historically been somewhere around that two point of growth.
And again, there are some variables fluctuate on that but that that was that was the issue on the flat surgical volume for Q4 was not nothing other than one less surgical day.
Our next question comes from Kevin Fischbeck with Bank of America.
Great. Thanks, I appreciate you guys breaking out kind of how you thought about the core pricing in.
In the quarter is there a way to do that in the two.
2023 guidance.
Obviously, the Covid headwind 240 visa headwind.
And then how to think about.
Anything else, that's moving pieces, but what I understand that the core trends in pricing and then maybe talk.
Talk a little bit about commercial.
Great growth of what Youre renegotiating today. Thanks.
Yes, Kevin let me start with that so as I said in my prepared remarks, we are anticipating revenue per equivalent admission around 2%. That's on an as reported basis. Obviously you called out some of those nonrecurring revenue items. We've had the benefit of in 'twenty. Two we don't expect to continue next year. If you adjust for those that would probably be pushing us.
Closer to 3% number which would be historically, we would see 2% to 3% growth. So it really moves us back into our historical pricing trends.
What we would see pre COVID-19, it's just that we're having to jump over some of that loss of co and so that was a 2% guidance on a revenue per equivalent admission if you adjust that it would be closer to three which is aligned with our long term guidance is contemplating both our Medicare rate updates with some improved commercial pricing that I think we've talked about in the past.
Yeah.
Our next question comes from Ann Hynes with Mizuho Securities.
Hi, Good morning, I know some of your peers have noted that this session outsourcing services, especially on the E. R. As a pressure point for 2023 are you seeing that and if so how much of a headwind to EBITDA.
And secondly, just on the natural turnover I know you said that well.
While you had a big improvement.
What do you Wanna be can you talk about where you are for nursing turnover ppm dynamic where you ended Q4 and maybe what you think you could end 2023.
Excuse me.
So and as Sam.
We.
Pre pandemic, we're somewhere around 13 or 14.
Excuse me, 14% for nursing turnover.
We are on a run rate now 18 18 to App, that's down from mid twenties.
The industry average is somewhere in the mid to upper Twenty's right now from what we've seen with external benchmarks and so forth. So we're really encouraged by the progress our teams have made and again over the last six months of the year, we were starting to see improving trends.
<unk>.
We believe we have the right initiatives in place.
To carry some momentum in that area into 2023.
The market as I mentioned is a bit tenuous still but we're encouraged by the <unk>.
Investments we've made in our.
Recruiting the investments we've made in retention and leadership training and just the I'll call. It the hand to hand combat that exist in making sure that our employees.
Have the resources on their units that are necessary for them to deliver great care to their patients and for them to be successful and whatever their role is in the company and we think we're making progress on pretty much all of those fronts.
And on the emergency room I'd broaden it to.
More than a merchant just hospital based physician, we have talked about in the past we are seeing some increased pressures for subsidies around horse room, and anesthesiologists and the like we have a number of initiatives to try to counter those but yes, we are expecting some upward pressure in those areas that we factored into our guidance.
It rolls through as I've mentioned in the previous question in our other operating expenses and we could potentially see higher single digit year over year growth in those categories.
We added a little bit a pace above our revenue.
We think we've made appropriate consideration for those trends inside of our guidance.
Alright. Thanks.
Yes.
Our next question comes from Brian <unk> with Jefferies.
Hey, Good morning, guys I guess, Dan follow up to <unk> question is to build the answer that I saw that you exercise the call option on the envision JV last week. So just curious how youre thinking about operationalize any of that and what would change for HCA as you bring those physicians back in house.
Maybe just thoughts on the P&L and balance sheet impacts of that as well.
Yes.
So we've had a wonderful relationship with envision over the years and it continues to be strong across different facilities and our company.
A number of years ago, we had made an investment in a co venture with them that we felt was an opportunity for us to integrate.
That physician service, mainly in the ER and Hospitalist medicine, and a few other sub specialty categories within our hospitals as.
More clinically aligned and so forth and and what we see as an opportunity to further that and so we are.
Moving to acquire a larger percentage of that co venture and we think it will give us a little better visibility in how to achieve better clinical integration to improve quality. We think we can use that platform to improve efficiency.
Within our emergency rooms, primarily and even on our med surge floors, where our hospitalist work.
It will support graduate medical education in some innovative ways. We believe and then finally, we think it offers up an opportunity for us too.
Advance our connections through our strategic outreach partners in ways that maybe we don't necessarily accomplish in the structure we have today.
So we are pushing through the <unk>.
Final stages of that transaction I think it is scheduled to close sometime in the spring we will take the rest of the year to fully assimilate. It so to speak and then as we get into 2024, we anticipate being able to execute more effectively on these.
<unk> categories.
Okay.
Our next question comes from Stephen Baxter with Wells Fargo.
Hi, Good morning, just wanted to ask a follow up on the 2023 guidance. So I was hoping you could talk a little bit more specifically about your expectations on inpatient admissions I guess first.
How are you thinking about where the equivalent figure goes in 2023% compared to the five 2% of admissions in 2022.
The implication being you know would love to hear how you're thinking about non COVID-19 admission growth in 2023. Thank you.
Yes, so I'll start with that so.
We expect a continued decline of Covid emissions as you've mentioned and I said in my prepared remarks. So they represented about five 2% of our total admissions. This year, we're thinking next year, probably somewhere between 3% and 4% of our total admissions.
We believe right now are inpatient admission growth somewhere around that 2% number.
That's embedded within the equivalent admission guidance that I gave between two to three.
And again, we'll continue to monitor that as we go through the year. We continue to believe that the strong demand in our markets and we're positioned well to serve that demand. So inpatient volume were hovering around two.
And then al.
Outpatient revenue probably continue to grow in that mid single digit level and that helps us get to the 2% to 3% equivalent admission steps and that our guidance entails.
Our next question comes from Scott Fidel with Stephens.
Hi, Thanks, good morning instead.
Interested if you can just recap for us what the non Colgate acuity and case mix trends were in 2022, and then what you're building in for your assumptions for 2023.
Yes.
So I don't know if I have the case mix unnecessarily.
Seen in relatively flat as I recall on the on the.
On the on the Covid case mix rider or non Covid case mix improved about 2% sequentially from the third quarter to the fourth quarter.
Going forward our revenue per equivalent admission was was roughly roughly flat for the year over year comparisons.
And then bill on the outlook for 'twenty three.
For non Covid, yes.
Yes that would be embedded in our revenue per equivalent admission of about 2% and then when you.
Factor out the loss of the revenue items, I think as I mentioned earlier that pushes closer to 3%.
And that would be just a combination of all factors of acuity as well as the payer mix and pricing trends underneath that.
And Bill if I can add I think it's important for everybody everybody to understand that strategically we continue to invest in programs as I mentioned in my.
Prepared comments a lot of those programs are farther up the acuity ladder. If you will they're more significant programs or extensions of existing programs and as we get our footing so to speak with.
Our mid level program or an upper mid level program. Then we can move into a more acute level program and that helped with our overall acuity statistic.
So thats part of our strategy, we're doing that on top of the same fixed cost platform through our hospitals have the same fixed cost regardless of the acuity in many instances and so if we can increase the acuity, we get operating leverage from that.
So strategically that's a very important.
Initiative of ours that transfers and that we haven't been able to take care of tends to be slightly more acute than our average in most instances and here again, that's why it's so important for us to get more.
Poise across the organization to take care of these patients who need our services, but all that's embedded it's out of our real strategic initiative that we have.
Okay. Thank you.
Our next question comes from Calvin Darling with J P. Morgan.
Yeah.
Hi, good morning.
Looking at another strong quarter for ER volumes can you talk a bit about the trends you've seen there the last few quarters in terms of payer and acuity mix and what you're expecting.
Okay.
Sort of related.
Think about the volume trends across the business over the last couple of quarters.
Service lines or categories that are either over underperformed relative to your expectations.
Any color you can give on those going into 2023.
Sure.
This is Sam let me speak to some of our service lines trends.
During the pandemic, we felt the emergency room might be disrupted from what our previous beliefs were and there was new uses of telemedicine.
Alternative that were being experience we thought what we've seen is just the opposite the resiliency of the emergency room for communities is even greater than we thought and the demand. There is very strong because our emergency rooms, and other people's emergency rooms are a solution set for people.
Whenever health care is needed so our trends in the emergency room have been very solid over the course of the year and when you look at them really without the COVID-19 activity, it's especially impressive I think.
We have seen good volume growth in our orthopedics are total joint business for the quarter was up 6%.
In many instances we fully absorbed we believe most of the shift over the last three years during the pandemic.
With the orthopedic business moving from inpatient to outpatient and in most instances we believe the large majority of that is behind us.
So we don't have that as a pressure point like we've had over the past three years, but nonetheless, we've grown that business in the face of the site of care shift we have a very robust pipeline for our emergency rooms, especially our freestanding emergency room platform.
Three significant development opportunity there for us across our communities and we're investing in that are urgent care center platform continues to grow we're up to 260 urgent care centers.
We'll probably push through 302023, our ambulatory surgery Center platform continues to grow here again, we have more de Novo development inside of our ambulatory surgery center platform than we've had in the past and we're encouraged by how that fits into our network.
<unk> had a very productive way so we're really.
Pretty excited about.
Our investments in our ambulatory network, our investments and our acuity programs at our higher service slides.
And we will continue to we believe be well positioned to deal with the growing demand that we see in the market.
Our next question comes from Lance Wilkes with Bernstein.
Yeah could you just talk a little bit about.
Permanent nurses and understand the retention rates are getting better there can you talk a little bit about new hirings, what the what sort of growth youre seeing there what are maybe some of the drivers of access the nurses there where are they coming from and then also if you could just talk a little bit about you said the investment spend was pressure.
On the long term plan was pressuring.
22, a little bit can you talk a little bit about 23 might look compared to 22 with that thanks.
What are you take build on the last question. Yes. This is bill on the investments you know when you think about the technology investments.
The investments, we're making in some of the clinical transformation and I'd also say with the expansion of our of our nursing schools going forward, probably is somewhere around an incremental investment of $150 million and 23 compared to what we ran in 'twenty two all in we didn't call that out, but whether it's part of our long term investment we think that.
We will continue to drive.
Performance and value for us.
So our hiring in 2022 was up a little north of 6% just a huge number of new hires.
And so thats the total number just as a starting point where that is coming from.
That's coming from.
New grads Theres, there still is a decent pipeline of new graduate nurses in our communities, we have academic partnerships with different colleges beyond Galen.
That are important to that pipeline.
We're also seeing some travelers decide that okay enough. We traveled we want to come back and we've been able to recover some of the employees who traveled.
For a period of time back into our organization.
So we continue to be focused on trying to recover them and I think again with our benefit and with our wage adjustments at all the investments, we're making in clinical education.
And the other components of our labor agenda, we're starting to see more.
Favorable trends in our recruitment function that we think.
If they carry into 2023 and through the year should be should be positive for us.
Great. Thanks.
Our next question comes from Jason <unk> with Citigroup.
Great. Thanks for taking my question I, just wanted to ask a bit more on the capital priorities, you've recently divested ownership in some hospitals, but just wondering how you're viewing the M&A backdrop, and if youre seeing opportunities to increase your footprint in your current markets.
Potentially entering into new markets and then just on share repurchases you've increased your authorization by $3 billion you have $4 five lots remaining just in light of the $7 billion. This year, just curious how you're thinking about share repurchases in the context of your larger capital deployment priorities.
Yes, let me take this is bill let me take the latter one first I think share repurchases you spent an important part of our overall balanced capital allocation. As you mentioned, we did $7 billion in 'twenty. Two we'll have authorization close to $4 5 billion I think we would plan on completing the majority of it sometime in this calendar year with a little bit of role.
Forward afterwards, and again, we will continue to adjust as kind of market conditions present, but a share repurchase program has just been part of our overall balanced allocation of capital going forward.
For M&A.
We have been fairly active in market with outpatient acquisitions again, when they come available whether it's urgent care some freestanding emergency room, some ASC, some physician clinics and so forth and.
And those are very complementary synergistic to our network acquisitions that we will continue to pursue those as they develop.
We have not had too many opportunities on hospital acquisitions, although our recently there wasn't announced LOI on a hospital just outside of the Dallas Fort worth market that we think is <unk>.
Synergistic with respect to clinical services, and so forth with our system in Dallas Fort worth. So we will continue to look for those we do have a pipeline of greenfield hospitals, because the acquisition environment is not as robust in market as.
Maybe we would have hoped so we need to consider greenfield projects and we do have a number of those that are in the works. We have one under construction currently in San Antonio and I want to say, we had seven or eight parcels of land maybe 10 that are designed for future Hospital development when.
Tom is right for us to make those investments.
Our next question comes from Steven Valiquette with Barclays.
Alright, Thanks, Hi, good morning, everybody.
So just on the surgical volumes you addressed most of the key questions related to the volumes for both the fourth quarter and the full year 'twenty three but just a follow up on that topic, I guess a little bit more.
More.
I'm, just curious whether or not you do see.
Any notable pent up demand for any surgical cases exiting out of <unk> 22 that might be falling at least into the early part of 'twenty three for various reasons just curious any visibility on early 'twenty three at this stage. Thanks.
Hard for us to really judge the.
Whether there is demand on the sidelines that we don't see it I mean, we get some anecdotal information from our physicians who might indicate that okay. There their clinic patient profiles were better in the fourth quarter than they were at any point in time.
Yes.
2022.
I don't know, if that's a precursor or not.
For pent up elective surgical demand I think we're just going to have to wait and see but I believe it is a positive metric and a positive anecdote that their clinic.
Rolls patient rolls appear to be at a higher level than they were in previous parts of 2022.
Okay, great. Thanks.
Our next question comes from Jamie <unk> with Goldman Sachs.
Thank you good morning, just a follow up on the commercial reimbursement.
Dynamics.
First can you remind us what percentage of contracts have been recently negotiated that will take effect at the higher rate January 1st and then secondly can you give us a little bit of color on what the initial bump in those contracts look like relative to the rate escalators that are locked in place for for the next couple of years. Thank you.
We.
Have I want to say bill, maybe 70% of our contracts for 2024 contracted.
I will tell you that.
Most of the contracts if not all of the contracts we closed in the last three quarters of 'twenty two.
We're in line with our expectations, which was around mid single digit in flavors. So those have to work their way into the 'twenty three.
Portfolio of contracts and audited 2024.
So we are encouraged by the outcomes of those negotiations I think there is a general recognition in the payer community that the input costs for providers is off our op and so given those inflationary pressures they recognize that.
There is a sensitivity to responded to that and we're trying to be appropriate and are asked and I think thats been received well and we've been able to close these contracts are reasonably timely so we still have.
30.
30% or so of 2023 that will get negotiated over the first part of this year. It will carry us through all of 2003 and on into 'twenty. Four we're about 40% contracted 24 again the tail effect of some of the closed contract negotiations that we've just achieved will carry into 2020.
Four.
Okay.
Our next question comes from Joshua Raskin with Nephron research.
Hi, Thanks for taking my question. So I know Capex guidance for 2023, it's only down slightly and I know, it's still January but it would be the first time in a long long time that capex would be down year over year not counting 2020 I was wondering if you can just speak to any changes in budgeting, our strategy or if theres anything that can be tempering that investment.
Yes, Jonathan I don't think Theres anything temporary in the investment at all I think 43 is our expectation as I mentioned in my comments. We initially expected for two for 'twenty. Two it came in a little higher because we have some year end activity that I mentioned around some real estate some.
So I wouldn't read anything from down to the four 4% to 43, it's actually up compared to where our initial expectations are but as a summary, we still see very good opportunities to deploy capital.
We believe to capture growth opportunities in the marketplace and we've talked about some of that whether that be through our freestanding eds, whether some development of new hospitals, whether it be expansion of campuses. So again I think it's an important part of our overall capital allocation and I think an important part of our continued long term focus on growing.
Yeah.
Our next question comes from Andrew Mok with UBS.
Hi, Good morning, I was hoping you could provide a bit more color on the supply cost trends into 2023, what are the assumptions around unit cost increases.
What steps did you take to manage inflationary pressure for multiyear contracts.
Yes.
You for the question.
Our teams and our supply chain teams have done an incredible job over the past 12 to 18 months on our supply cost portfolio and.
And especially with the backdrop of an inflationary increases and we've talked about through the year. We've been really seeing really positive trends and then actually to keep our supply cost growth below our revenue growth.
Much of that was because some of our contracts 60% of our contracts are so was under firm pricing for the most of 'twenty. Two as we look forward I think our basic assumption is to continue to keep our supply cost as a percent of revenue flat from where we ran full year of 2003 that would imply our supply cost per unit.
Somewhere around that 2% level, plus or minus a little bit but again, we're expecting continued good results and again our teams do a nice job, but we can keep that supply cost as a percent of revenue flat with where we ran this year with the backdrop of inflationary. That's that's pretty pause we have a number of initiatives underway that are teams use.
As part of our benchmarking initiatives as to.
Look at utilization and identify best practices across the organization.
Also we're looking at product selection partnering with our clinical teams. So we have a number of initiatives underneath our supply chain operations that are helping us to achieve those results and we look forward to those continuing as we go into 'twenty three.
Okay.
Yeah.
Okay.
Our final question comes from John Ransom with Raymond James.
How hard it is to be clever with a question. After all these good questions.
Figure somehow John .
[laughter] yeah.
Like three of my questions have sold them in the last five minutes out west but fair enough.
No.
For me it if we think about.
You reduce your labor turnover, so let's say it goes.
From 25 to 20.
How does that.
How would that affect your labor cost per either for revenue.
Does that factor into a savings algorithm. Thanks, Bob.
How it affects our revenue per unit.
No no I mean, the salary either salary as a percent of adjusted admits or salaries as a percent of revenue.
Ill turn it over if you did turned over about 500 bps, how would that affect the labor margin.
Well in theory will flow through as reduction of our contract labor.
And so the the margin if you will on the contract labor as we replace.
And individual from a contractor to AA employed one is that we will save that margin and being able to reinvest in what we've been able to do this year is reinvest back into our employed workforce and thats part of the fact that turnover level and I think all of that John I would say is.
<unk> incorporated it if you look at the overall labor expense I mean, theres a lot of components into that and as we've said we think we can maintain our labor cost as a percent of revenue.
Where we are finished this year it's.
It's a function of reducing those premium labor and reinvesting back into our employee workforce and keeping that relatively flat year over year and I think thats. A good result for us and allows us to continue to recognize the important work our employees do for us.
Thanks, so much.
John .
There are no further questions at this time I'll now turn the call over to Mr. Frank Morgan.
David Thank you for your help today and thanks to everyone for joining us on this call. We hope you have a great weekend around this afternoon. If I can answer additional questions you might have have a great day.
That concludes today's conference. Thank you for attending today's presentation you may now disconnect.